FORM 10-QSB/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 31, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
COMMISSION FILE NO. 0-21394
DEVELOPED TECHNOLOGY RESOURCE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1713474
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
12800 WHITEWATER DRIVE, SUITE 170, MINNETONKA, MINNESOTA 55343
(Address of principal executive offices) (Zip Code)
(612) 938-7080
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____.
838,966 common shares, $.01 par value, were outstanding as of January 31, 1996.
DEVELOPED TECHNOLOGY RESOURCE, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets as of January 31, 1996
and October 31, 1995 3
Condensed Statements of Operations for the three
month periods ended January 31, 1996 and 1995 4
Condensed Statements of Cash Flows for the
three month periods ended January 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION 11
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
ASSETS 1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,401,112 $1,296,243
Short-term marketable securities 85,663 53,717
Net receivable from sale of security equipment business 143,292 --
Accounts receivable, net 83,932 98,547
Inventory -- 87,880
Prepaid and other current assets 8,850 20,136
Advance payments to suppliers 30,730 46,601
---------- ----------
Total current assets 1,753,579 1,603,124
Property and equipment, net 94,919 106,507
Investment in partnerships and joint ventures, net 216,335 217,479
---------- ----------
Total assets $2,064,833 $1,927,110
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 617,598 $ 468,985
Accrued liabilities 251,283 175,395
Deferred grant revenue 72,994 137,455
Customer deposits 39,014 51,906
---------- ----------
Total current liabilities 980,889 833,741
Shareholders' equity 1,083,944 1,093,369
========== ==========
Total liabilities and shareholders' equity $2,064,833 $1,927,110
========== ==========
</TABLE>
See accompanying notes to the consensed financial statements.
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
1996 1995
--------- ---------
<S> <C> <C>
Equipment sales $ 333,429 $ 79,278
Commissions and other income 103,034 53,602
--------- ---------
Total revenues 436,463 132,880
--------- ---------
Cost of equipment sales 292,235 67,599
Selling, general, and administrative
expenses 227,809 445,722
--------- ---------
Total costs and expenses 520,044 513,321
--------- ---------
Operating loss (83,581) (380,441)
Interest income 18,702 30,084
Interest expense -- (101)
Equity in net income (loss) of partnerships and joint ventures 30,167 (2,575)
--------- ---------
Loss from continuing operations (34,712) (353,033)
Income (loss) from discontinued operations 25,287 (7,392)
--------- ---------
Net loss ($ 9,425) ($360,425)
========= =========
Net loss per common share - continuing operations ($ 0.04) ($ 0.40)
Net income (loss) per share - discontinued operations 0.03 0.00
--------- ---------
Net loss per share ($ 0.01) ($ 0.40)
========= =========
Weighted average common shares outstanding 838,966 893,333
========= =========
</TABLE>
See accompanying notes to the consensed financial statements.
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (9,425) $ (360,425)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization 11,928 11,935
Equity in net (income) loss of partnerships and joint ventures (30,167) 2,575
Changes in assets and liabilities:
(Increase)decrease in accounts receivable (128,677) 290,823
Decrease(increase) in inventories 87,880 (173,955)
Decrease(increase) in prepaid and other current assets 11,286 (30,362)
Decrease(increase) in advance payments to suppliers 15,871 (199,792)
Increase(decrease) in accounts payable and accrued liabilities 224,501 (72,906)
(Decrease) in deferred grant revenue (64,461) --
(Decrease)increase in customer deposits (12,892) 614,158
----------- -----------
Net cash provided by operating activities 105,844 82,051
----------- -----------
Cash flow used in investing activities:
(Purchase)sale of short-term investments (31,946) 1,157,558
(Purchase)sale of property and equipment (340) 182
Advances/contributions to joint ventures, net 31,311 21,300
----------- -----------
Net cash (used in) provided by investing activities (975) 1,179,040
----------- -----------
Net cash provided during period 104,869 1,261,091
Cash and cash equivalents:
Beginning of period 1,296,243 230,199
----------- -----------
End of period $ 1,401,112 $ 1,491,290
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest -- $ 101
</TABLE>
See accompanying notes to the condensed financial statements.
DEVELOPED TECHNOLOGY RESOURCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1996
(UNAUDITED)
1. Basis of Presentation
The interim financial statements are unaudited, but in the opinion of
management reflect all normal recurring adjustments necessary for a fair
presentation of the results of operations, financial position and cash
flows for the interim periods.
The results of operations for any interim period are not necessarily
indicative of results for the full year.
These financial statements should be read in conjunction with the
Company's Annual Report and Notes thereto on Form 10-KSB for the year
ended October 31, 1995, and filed with the Securities and Exchange
Commission on January 26, 1996, and the 10-KSB/A, filed with the
Commission on February 27, 1996.
Certain prior period amounts have been reclassified to conform to the
current period presentation with no impact on net loss or shareholders'
equity.
2. Short-Term Marketable Securities
Short-term marketable securities consist of U.S. Treasury Notes,
commercial paper and bank certificates of deposit with a maturity of
greater than three months but less than one year. These securities are
carried at cost, which approximates market, adjusted for amortization of
premiums and accretion of discounts under the interest method. The Company
intends to hold these securities to maturity.
3. Accounts Receivable
Accounts receivable are net of the allowance for doubtful accounts. The
receivable balance as of January 31, 1996 was $439,783, net of an
allowance for doubtful accounts of $212,559.
4 Stock Split
In December, 1995, the Company declared a 1 for 3 reverse stock split. All
amounts included in the financial statements and related notes give
retroactive effect to the reverse stock split. The Company also amended
its articles of incorporation to reduce all authorized shares by
two-thirds.
5. Discontinued Security Systems Sales and Service Business
Effective December 31, 1995, the Company entered into an agreement selling
certain assets and the rights to the sale of airport security equipment in
the former Soviet Union to a company owned by a former employee. For
payments over the next 30 months totaling $810,000, the Company
transferred assets, inventory, customer lists, promotional materials, and
other items having book value of $143,293 net of liabilities. The $810,000
amount includes reimbursement of $45,000 in expenses incurred by the
Company during the first quarter of fiscal and related to this business.
Due to the inherent risks of operating in the former Soviet Union,
including the granting of credit, the gain on this sale will be recognized
only as realized in the form of cash receipts.
The prior year's condensed unaudited financial statements have been
restated to reflect the effects of the sale of the Security Systems Sales
and Service Business.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Developed Technology Resource, Inc. (the "Company" or "DTR") was
incorporated on November 13, 1991 in the State of Minnesota to locate
potentially viable technologies in the former Soviet Union (FSU) for transfer
and sale to companies in the West. During the first two years of operation, the
Company experienced limited success from its efforts to locate and sell
technology, and shifted its focus from the transfer of FSU technology to the
United States to the sale and distribution of equipment and services to
organizations in the FSU. The Company also developed business opportunities in
the FSU, including the opening of business centers and the forming of a joint
venture to process and sell dairy products in Kazakhstan.
Revenue in fiscal 1995 was primarily from the sale and installation of
airport security and food packaging equipment, and also included proceeds from a
one-time sale of sports-related technology. A limited amount of revenue was from
the Company's Moscow post office-based business centers and from the sales of
x-ray tubes manufactured in Russia and sold by DTR in the United States. In
June, 1995 the Company, through FoodMaster, its joint venture in Kazakhstan,
started manufacturing and packaging dairy products. While no significant
contribution was made to the Company's operations in 1995, revenues grew
substantially during the first quarter of fiscal 1996, exceeding $270,000 in
January. As the Company is not a majority or controlling shareholder, the
activities of this joint venture are not consolidated, and only that portion of
net operating results are recorded.
In the third quarter of fiscal 1995, the Company's Board of Directors
approved a restructuring plan that focused efforts on those businesses felt to
offer the greatest potential for future profitability. After reviewing each
business unit individually, a restructuring plan was implemented that reduced
the Company's activities in Russia to those areas offering the greatest
potential for increasing long-term shareholder value. As part of the plan,
management reduced or eliminated participation in those under-performing profit
centers (business centers, food packaging equipment sales, and technology joint
ventures) not having the future business potential necessary to provide an
acceptable rate of return at an acceptable level of risk. At the same time, the
number of business activities was reduced, overhead was reduced to the level
necessary to effectively support continuing operations.
SALE OF SECURITY EQUIPMENT DISTRIBUTION BUSINESS
During the quarter ended January 31, 1996 the Company executed an
agreement with its Director of Security Equipment Sales agreeing to the sale of
certain assets and the Company's rights to sell airport security equipment in
regions of the former Soviet Union. This transaction is more fully described at
the end of Item 2, Discontinued Operations. The financial statements and related
information have been adjusted to reflect the sale of this business.
FOODMASTER JOINT VENTURE IN KAZAKHSTAN
During fiscal year 1995, the Company formed FoodMaster, a Kazakhstan
limited liability company owned in equal parts by the Company and a Kazakhstan
company, for the purpose of manufacturing and selling dairy products under
license from the Company. The Company applied for and received a $299,000 grant
from the United States Agency for International Development (USAID) to help
finance the project. During fiscal 1995, the Company received $151,871 from the
USAID under terms of the grant, with an additional $79,606 received during the
first quarter of fiscal 1996.
FoodMaster started producing yogurt in July, 1995 and kefir, milk, sour
cream and cottage cheese in October, 1995. Sales have increased steadily,
reaching $270,000 in January, 1996. Additional growth is anticipated due to well
received and competitively priced products.
The Company currently accounts for its FoodMaster joint venture under
the equity method of accounting, recording only its share of FoodMaster's
operating results as equity in net incomes or losses of partnerships and joint
ventures. DTR also derives revenue from FoodMaster in the form of licensing and
royalty fees at 25% of net income, having supplied the joint venture with
marketing expertise, proprietary formulas and trade secrets, and DTR-owned brand
names. Included in other income for the first quarter of fiscal 1996 is $30,167
from these fees. Because of the royalty payments received by the Company from
FoodMaster, the Company has agreed to receive only a one-third share of
operating results. As all activity conducted by FoodMaster is conducted in the
local currency (the Tenge), conversion, timing, and other translation issues may
arise that in the future may affect the amount actually realized by DTR. The
Company is currently negotiating additional voting rights on FoodMaster's board
of directors to obtain effective control of the joint venture. This potential
future change in control will allow the Company to present its financial
statements on a consolidated basis, including the results of FoodMaster's
operations.
RESULTS OF OPERATIONS
REVENUES
Revenue from operations has been adjusted to eliminate discontinued
operations related to sales and distribution of security equipment. For the
three months ended January 31, 1996, total revenues were $436,463, compared to
$132,880 for the three months ended January 31, 1995. Revenues increased in the
first quarter of fiscal 1996 due to favorable one-time adjustments related to
the elimination of business center activity, for which there was insignificant
revenue recorded during the prior year, and the recording of two final direct
sales of food packaging equipment originally placed in early 1995 and not
recognized until delivered. No additional direct sales revenue is anticipated
from either source, as direct sales activity was discontinued as part of the
restructuring undertaken in fiscal 1995. In fiscal 1996, the Company anticipates
receiving fee revenue under terms of a sub-distribution agreement whereby future
commissions will be received from sales made by an unaffiliated company actively
marketing food packaging equipment in Russia. Royalties and licensing fees from
the Company's 50% owned joint venture, FoodMaster, totaled $30,167.
COST OF EQUIPMENT SALES
Cost of equipment sales reflects the cost to purchase equipment and the
shipping, insurance and other expenses directly related to the sale and
installation. Cost of equipment sales for the three months ended January 31,
1996 was $292,235. Cost of equipment sales for the three months ended January
31, 1995 was $ 67,599, with the increase directly related to the increase in
sales.
The gross profit percentage was 31.6% for the three months ended
January 31, 1996, and 14.7% for the three months ended January 31, 1995. The
higher gross profit experienced in the first quarter of fiscal 1996 results from
the inclusion of food packaging equipment, for which the Company realizes a
higher profit margin. Sales for the first quarter of Fiscal 1995 were comprised
primarily of x-ray tubes and business center sales, which both earn lower
margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
January 31, 1996 were $227,809 compared to $445,722 for the three months ended
January 31, 1995. The $217,913 reduction is due primarily to staff cutbacks
resulting from the restructuring, combined with the reduction in related
administrative costs, including communications, rent, travel and lodging.
Operating results for the first quarter ended January 31, 1995 also included
expenses related to operating the laboratory in Tver, Russia, which was closed
during the third quarter of last year.
INTEREST INCOME
Interest income for the three months ended January 31, 1996 was
$18,702, compared to $30,084 for the three months ended January 31, 1995. The
higher interest earned last year was due to a higher level of excess working
capital available for investment. Interest income is derived from investing
excess cash in short-term instruments and cash equivalents, and other high grade
marketable instruments including commercial paper, treasury notes, and bank
certificates of deposit.
EQUITY IN NET LOSSES OF PARTNERSHIPS AND JOINT VENTURES
Equity in net income of partnerships and joint ventures of $30,167 for
the three months ended January 31, 1996 reflects the Companies one-third share
of FoodMaster's operating profit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net losses since inception have been funded primarily
from financing activities, advance deposits received from customers, and profits
on the sale of equipment. Financing activities consisted of two private
placements in 1992 and an initial public offering of the Company's common stock
in 1993, resulting in total net proceeds of $4,623,052.
As of January 31, 1996, the Company had working capital of $772,690. As
of October 31, 1995, the Company's working capital balance was $769,383. Excess
cash is invested in short-term interest bearing instruments. Under terms of the
lease agreement for the Company's office in Minnetonka, Minnesota, a $50,000
certificate of deposit is maintained for use as collateral in the event of
nonperformance.
Funding of the Company's $9,425 loss for the three months ended January
31, 1996 and prior losses accounts for the major use of working capital
provided. There were no significant purchases of furniture, fixtures or other
fixed assets.
Planned uses of working capital include the funding of selling, general
and administrative expenses. As approved and authorized by the Company's Board
of Directors, the Company may elect to invest limited amounts in future dairy
processing and packaging joint ventures if additional outside funding can be
obtained, along with a suitable partner and facilities.
Based on projections, the Company believes there will be sufficient
working capital and liquidity to fund operations through fiscal 1996, including
the funding of partnerships and joint ventures at the present level. However, if
projected revenues are less than anticipated, the Company may be forced to
reduce or forego future investments in partnerships or joint ventures, reduce
overhead, or seek additional financing.
DISCONTINUED OPERATIONS
Effective December 31, 1995, the Company entered into an agreement
selling certain assets and the rights to the sale of airport security equipment
in the former Soviet Union to a U.K. company owned by a former DTR employee. For
a combination of fixed and contingent payments, the Company transferred assets,
inventory, customer lists, promotional materials, and other items having an
approximate net book value on January 31, 1996 of $143,293, net of liabilities
assumed by the buyer.
Under terms of the agreement, the Company assigned to the former
employee all its rights under exclusive distribution agreements with its
principal suppliers, and agreed to cooperate to effect a smooth transfer of the
business. Consideration to be received by the Company includes a cash payment of
$45,000 intended to reimburse the Company for expenses related to this business
during the first quarter of Fiscal 1996, and payments over the next 30 months
totaling $765,000. A portion of these payments are personally guaranteed and are
collateralized by his ownership of 16,430 shares of the Company's Common Stock.
Additional contingent payments may also be received based on future performance.
The Company retained the right to pursue airport security management contracts.
Due to the inherent risks associated with doing business in the FSU,
including credit risk, the Company intends to record the note receivable at the
net value of the underlying assets sold and liabilities assumed by the buyer
totaling $143,293. As funds are collected beyond this amount, a process the
Company intends to actively manage, such amounts will be recognized as gain on
sale of discontinued operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K Current Report Dated February 20, 1996. The items
reported on this 8-K concerned a news release from the
Registrant's Board of Directors announcing the Company's sale
of its security equipment sales and distribution business in
the former Soviet Union to the Company's former Director of
Security Sales and Service.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 13, 1996 DEVELOPED TECHNOLOGY
RESOURCE, INC.
(Registrant)
/s/ John P. Hupp
John P. Hupp,
President
/s/ David Gardner
David Gardner
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 188,382
<SECURITIES> 1,298,393
<RECEIVABLES> 439,783
<ALLOWANCES> 212,559
<INVENTORY> 0
<CURRENT-ASSETS> 1,753,579
<PP&E> 216,340
<DEPRECIATION> 121,421
<TOTAL-ASSETS> 2,064,833
<CURRENT-LIABILITIES> 980,889
<BONDS> 0
0
0
<COMMON> 8,390
<OTHER-SE> 1,075,555
<TOTAL-LIABILITY-AND-EQUITY> 2,064,833
<SALES> 333,429
<TOTAL-REVENUES> 436,463
<CGS> 292,235
<TOTAL-COSTS> 292,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 64,879
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,712)
<DISCONTINUED> 25,287
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,425)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
